Headlines – Week of March 4, 2012

March 13, 2012

22.8% of Mortgages in Negative Equity

According to a recent report released by CoreLogic, 11.1 million, or 22.8 percent, of all residential properties with a mortgage were in negative equity at the end of the fourth quarter of 2011. This is up from 10.7 million properties, 22.1 percent, in the third quarter of 2011.

An additional 2.5 million borrowers had less than five percent equity, referred to as near-negative equity, in the fourth quarter. Together, negative equity and near-negative equity mortgages accounted for 27.8 percent of all residential properties with a mortgage nationwide in the fourth quarter, up from 27.1 in the previous quarter. Nationally, the total mortgage debt outstanding on properties in negative equity increased from $2.7 trillion in the third quarter to $2.8 trillion in the fourth quarter.

Negative equity, often referred to as “underwater” or “upside down,” means that borrowers owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.

Highlights from the report:

  • Nevada had the highest negative equity percentage with 61 percent of all of its mortgaged properties underwater, followed by Arizona (48 percent), Florida (44 percent), Michigan (35 percent) and Georgia (33 percent). This is the second consecutive quarter that Georgia was in the top five, surpassing California (30 percent) which previously had been in the top five since tracking began in 2009. The top five states combined have an average negative equity share of 44.3 percent, while the remaining states have a combined average negative equity share of 15.3 percent.
  • Of the 11.1 million upside-down borrowers, there are 6.7 million first liens without home equity loans. This group of borrowers has an average mortgage balance of $219,000 and is underwater by an average of $51,000 or an LTV ratio of 130 percent. For all first-lien-only borrowers negative equity share was 18 percent, while 41 percent of all first-lien-only borrowers had 80 percent LTV or higher.
  • The remaining 4.4 million upside-down borrowers had both first and second liens. Their average mortgage balance was $306,000 and they were upside down by an average of $84,000 or a combined LTV of 138 percent. The negative equity share for all first-lien borrowers with home equity loans was 39 percent, more than twice the share for all first-lien-only borrowers. Over 60 percent of borrowers with first liens and home equity loans had combined LTVs of 80 percent or higher.

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Full Report

4,300 New Condo Units Remain Unsold From South Florida Boom

According to a new report from CondoVultures.com, South Florida’s seven largest coastal markets (defined as Broward, Miami-Dade and Palm Beach counties) have now sold 91 percent of the nearly 49,000 new units created during the boom that began in 2003.

Buyers paid nearly $1.8 billion for more than 4.4 million square feet of livable space between January and December of 2011 in projects located east of Interstate 95 in the coastal markets.

With the 2011 developer sales, buyers have now purchased nearly 44,350 condo units for more than $21.8 billion in South Florida’s seven largest coast markets between 2003 and 2011, according to an analysis of Clerk of the Court records.

According to the report, international investors with strong foreign currencies deserve much of the credit for the strong sales velocity – an average of more than 250 new unit transactions monthly in 2011. T

Of course, the unanswered question is whether the foreign buyers will continue to flood into South Florida given the economic dynamics now being experienced in Europe and key Latin American countries such as Argentina, Brazil, and Venezuela.

The total number of unsold new condos does not include any of the more than 8,000 units that were purchased in bulk transactions by investment groups that plan to one day resell the units at a premium.

In anticipation of the eventual sellout of the new condos created during the boom, developers are already proposing 24 new condo projects with more than 4,500 units in each of the counties of South Florida, according to CondoVultures.

During the South Florida real estate boom, developers created 148 projects with more than 34,000 units in the three Miami-Dade County markets of Greater Downtown Miami, South Beach, and Sunny Isles Beach. An additional 68 projects with more than 10,000 units were created in two Broward County markets of Hollywood / Hallandale Beach and Downtown Fort Lauderdale and the Beach. Developers created 28 projects with nearly 4,500 units in the two Palm Beach County markets of Boca Raton / Deerfield Beach and Downtown West Palm Beach and Palm Beach Island.

In the four decades prior to the boom, developers created nearly 700 condominium projects with 76,500 units in the same seven coastal markets in South Florida, according to a comprehensive study undertaken for the Condo Vultures® Official Condo Buyers Guide™ eBook series. The Greater Downtown Miami had the distinction of being the single neighborhood with the greatest number of new condos created during the boom with nearly 22,250 units. At the end of 2011, less than 1,750 units remained under the control of the original developers.

Sunny Isles Beach ranked second with nearly 6,400 new units created during the boom. As of Dec. 31, 2011, Sunny Isles Beach has about 580 unsold developer units.

The popular South Beach neighborhood of Miami Beach ranks third with nearly 5,600 new units created since 2003. At the end of the fourth quarter of 2011, South Beach had 965 unsold developer units.

Housing Affordability Index Hits Record High

According to the National Association of Realtors® (NAR), housing affordability conditions have reached the highest level since recordkeeping began in 1970.

NAR’s Housing Affordability Index rose to a record high 206.1 in January, based on the relationship between median home price, median family income and average mortgage interest rate. The higher the index, the greater the household purchasing power.

An index of 100 is defined as the point where a median-income household has exactly enough income to qualify for the purchase of a median-priced existing single-family home, assuming a 20 percent downpayment and 25 percent of gross income devoted to mortgage principal and interest payments. For first-time buyers making small downpayments, the affordability levels are relatively lower.

According to the report, this latest data underscores buyer opportunities in today’s market and this is the first time the housing affordability index has broken the two hundred mark, meaning the typical family has roughly double the income needed to purchase a median-priced home.

NAR projects the affordability index for all of 2012 will be at an annual high, with little movement in mortgage interest rates or home prices during the year.

Housing inventory levels have declined to a point where conditions are becoming much more balanced in much of the country.

The key is access to credit.  If access improves, we should see a much more meaningful increase in home sales and broader stabilization in home prices, with modest gains in areas with stronger job growth.

Posted by Scott R. Lodde 


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